Will Media Examine Candidates' Proposals Before Financial Crisis?

As a result of the stock market collapse in the last four weeks, the economy has become the most important issue on the minds of voters.

Yet, as Barack Obama has clearly benefitted in the polls during this period, the media have refused to examine the records of the two presidential candidates as it pertains to policy proposals they have recommended or supported that might have averted this crisis.

Is this because John McCain has clearly been more out in front of this issue than Obama, and if the press actually did their job and told the American people this it might negatively impact the junior senator from Illinois's campaign?

Consider what McCain said during Tuesday's debate after being asked a question by Tom Brokaw concerning the condition of the economy (photo courtesy ABCNews.com):

I'd like you to see the letter that a group of senators and I wrote warning exactly of this crisis. Senator Obama's name was not on that letter.

With markets cratering, and fear of a serious recession nay depression gripping the nation, one might have expected press outlets to be clamoring to find this letter, and report its details. Yet, from what I can tell, this has gone virtually ignored by most major mainstream media outlets despite its obvious significance.

Both John McCain and Barack Obama took turns during the second presidential debate on Tuesday night claiming credit for having warned of an imminent economic crisis.

Obama has referred frequently to his 2007 letter to Treasury Secretary Henry Paulson. But Sen. McCain countered by saying that he had written a letter "warning of exactly this crisis." As far as we can tell, this was the first reference McCain has made of such a letter, and we couldn't find it.

On Friday, Human Events did find it, and published pictures of it here (full text follows):

We are concerned that if effective regulatory reform legislation for the housing-finance government sponsored enterprises (GSEs) is not enacted this year, American taxpayers will continue to.be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole. Therefore, we offer you our support in bringing the Federal Housing Enterprise Regulatory Reform Act (S. 190) to the floor and allowing the Senate to debate the merits of this bill, which was passed by the Senate Banking Committee.

Congress chartered Fannie and Freddie to provide access to home financing by maintaining liquidity in the secondary mortgage market. Today, almost half of all mortgages in the U.S. are owned or guaranteed by these GSEs. They are mammoth financial institutions with almost $1.5 Trillion of debt outstanding between them. With the fiscal challenges facing us today (deficits, entitlements, pensions and flood insurance), Congress must ask itself who would actually pay this debt if Fannie or Freddie could not?

Substantial testimony calling for improved regulation of the GSEs has been provided to the Senate by the Treasury, Federal Reserve, HUD, GAO, CBO, and others. Congress has the opportunity to recommit itself to the housing mission of the GSEs while at the same time making sure the GSEs operate in a manner that does not expose our financial system, or taxpayers, to unnecessary risk. It is vitally important that Congress take the necessary steps to ensure that these institutions benefit from strong and independent regulatory supervision, operate in a safe and sound manner, and are primarily focused on their statutory mission. More importantly, Congress must ensure that the American taxpayer is protected in the event either GSE should fail. We strongly support an effort to schedule floor time this year to debate GSE regulatory reform.

Sincerely,

This was signed by McCain and nineteen other Republican senators; not one Democrat signed it.

One would think this would be newsworthy, and should have immediately been reported by investigative journalists all over the country Wednesday. Instead, we've heard precious little about this even as media focus a great deal of attention on the crisis that might have been averted if these Republicans -- and McCain -- had been successful getting this legislation passed.

Federal Housing Enterprise Regulatory Reform Act of 2005 - Amends the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 to establish: (1) in lieu of the Office of Federal Housing Enterprise Oversight of the Department of Housing and Urban Development (HUD), an independent Federal Housing Enterprise Regulatory Agency which shall have authority over the Federal Home Loan Bank Finance Corporation, the Federal Home Loan Banks, the Federal National Mortgage Association (Fannie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac); and (2) the Federal Housing Enterprise Board.

This bill was blocked in committee by Democrat senators throughout 2005 which led the aforementioned 20 Republicans in May 2006 to urge Frist and Shelby to finally get this act to the floor. Roughly three weeks later, McCain, in an effort to push this legislation further, added his name to the bill as a co-sponsor:

Mr. President, this week Fannie Mae's regulator reported that the company's quarterly reports of profit growth over the past few years were "illusions deliberately and systematically created" by the company's senior management, which resulted in a $10.6 billion accounting scandal.

The Office of Federal Housing Enterprise Oversight's report goes on to say that Fannie Mae employees deliberately and intentionally manipulated financial reports to hit earnings targets in order to trigger bonuses for senior executives. In the case of Franklin Raines, Fannie Mae's former chief executive officer, OFHEO's report shows that over half of Mr. Raines' compensation for the 6 years through 2003 was directly tied to meeting earnings targets. The report of financial misconduct at Fannie Mae echoes the deeply troubling $5 billion profit restatement at Freddie Mac.

The OFHEO report also states that Fannie Mae used its political power to lobby Congress in an effort to interfere with the regulator's examination of the company's accounting problems. This report comes some weeks after Freddie Mac paid a record $3.8 million fine in a settlement with the Federal Election Commission and restated lobbying disclosure reports from 2004 to 2005. These are entities that have demonstrated over and over again that they are deeply in need of reform.

For years I have been concerned about the regulatory structure that governs Fannie Mae and Freddie Mac--known as Government-sponsored entities or GSEs--and the sheer magnitude of these companies and the role they play in the housing market. OFHEO's report this week does nothing to ease these concerns. In fact, the report does quite the contrary. OFHEO's report solidifies my view that the GSEs need to be reformed without delay.

I join as a cosponsor of the Federal Housing Enterprise Regulatory Reform Act of 2005, S. 190, to underscore my support for quick passage of GSE regulatory reform legislation. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole.

I urge my colleagues to support swift action on this GSE reform legislation.

As ProPublica reported Thursday, Obama is hanging his hat on a letter he wrote in 2007 after he announced his candidacy for president:

Obama likes to bring up the letter he wrote to Paulson and Federal Reserve Chairman Ben Bernanke. Dated March 22, 2007, about six weeks after he'd declared his candidacy for the presidency, the letter stressed the need for immediate intervention to curb the "rising rates of home foreclosure in the subprime mortgage market":

And while neither the government nor the private sector acting alone is capable of quickly balancing the important interests in widespread access to credit and responsible lending, both must act and act quickly.

Sadly, the link to Obama's letter doesn't work. However, the Atlantic's Andrew Sullivan copied much of it in a March 25, 2008, blog post:

Dear Chairman Bernanke and Secretary Paulson,

There is grave concern in low-income communities about a potential coming wave of foreclosures. Because regulators are partly responsible for creating the environment that is leading to rising rates of home foreclosure in the subprime mortgage market, I urge you immediately to convene a homeownership preservation summit with leading mortgage lenders, investors, loan servicing organizations, consumer advocates, federal regulators and housing-related agencies to assess options for private sector responses to the challenge.

We cannot sit on the sidelines while increasing numbers of American families face the risk of losing their homes. [...]

And while neither the government nor the private sector acting alone is capable of quickly balancing the important interests in widespread access to credit and responsible lending, both must act and act quickly.

Working together, the relevant private sector entities and regulators may be best positioned for quick and targeted responses to mitigate the danger. Rampant foreclosures are in nobody's interest, and I believe this is a case where all responsible industry players can share the objective of eliminating deceptive or abusive practices, preserving homeownership, and stabilizing housing markets.

The summit should consider best practice loan marketing, underwriting, and origination practices consistent with the recent (and overdue) regulators' Proposed Statement on Subprime Mortgage Lending. The summit participants should also evaluate options for independent loan counseling, voluntary loan restructuring, limited forbearance, and other possible workout strategies. I would also urge you to facilitate a serious conversation about the following:

* What standards investors should require of lenders, particularly with regard to verification of income and assets and the underwriting of borrowers based on fully indexed and fully amortized rates.

* How to facilitate and encourage appropriate intervention by loan servicing companies at the earliest signs of borrower difficulty.

* How to support independent community-based-organizations to provide counseling and work-out services to prevent foreclosure and preserve homeownership where practical.

* How to provide more effective information disclosure and financial education to ensure that borrowers are treated fairly and that deception is never a source of competitive advantage.

* How to ensure adequate liquidity across all mortgage markets without exacerbating consumer and housing market vulnerability.

Of course, the adoption of voluntary industry reforms will not preempt government action to crack down on predatory lending practices, or to style new restrictions on subprime lending or short- term post-purchase interventions in certain cases. My colleagues on the Senate Committee on Banking, Housing and Urban Affairs have held important hearings on mortgage market turmoil and I expect the Committee will develop legislation.

Nevertheless, a consortium of industry-related service providers and public interest advocates may be able to bring quick and efficient relief to millions of at-risk homeowners and neighborhoods, even before Congress has had an opportunity to act. There is an opportunity here to bring different interests together in the best interests of American homeowners and the American economy. Please don't let this opportunity pass us by.

With this in mind, it is clear that both McCain and Obama are on the record concerning this issue. Yet, media, just three weeks before Election Day, don't seem to care.

Why?

Could it be because Obama expressed his concerns to Bernanke and Paulson rather than to fellow members of the Senate that might have actually brought legislation to the floor? Could it also be because Obama didn't mention Fannie Mae and Freddie Mac in his letter, or anything specific to solve the problem?

Or might it just simply be because Obama's concerns were expressed just one month before the housing market peaked, and only four months before the credit crisis first started rocking Wall Street in July 2007?

No matter how you slice it, the record shows McCain supported legislation to regulate Fannie Mae and Freddie Mac in May 2006 fully fourteen months before the first cracks in the credit markets surfaced. By contrast, ten months later, and likely much too late to have any impact, Obama wrote a letter to Bernanke and Paulson urging a "serious conversation" about this matter.

As America's media have depicted the current financial crisis as the worst since October 29, 1929, isn't it incumbent on them to tell the public what the two presidential candidates, in their roles as Senators, did to avert this crisis?

Or would that be too much like journalism?

Post facto opinion: It has been avowed by many conservatives that if the media did their job the past four weeks, and informed the public of how President Bush and the Republicans have been trying to impose stricter regulations over Fannie Mae and Freddie Mac since the early part of this decade only to be thwarted by Congressional Democrats, McCain would likely be well ahead in the polls, and we'd be talking about a Republican landslide on Election Day rather than a Democrat one.

In the end, there's really nothing we can do about that now.

However, with the nation facing its most serious financial crisis in years nay decades, it seems almost impossible to believe that America's press can hide from the citizens what the two presidential candidates did or didn't do to head off this looming calamity.

With recent polls showing fully 50 percent of the nation viewing the economy and jobs as the number one issue this election, shouldn't what the two candidates did to avert this crisis, in their official capacities as U.S. Senators, be almost a central focus of all campaign reports at this time?

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